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What if I don't qualify for Help to Buy...and other questions you were too afraid to ask...

Word Smith's picture
Fri, 01/03/2014 - 15:57 -- Word Smith
Government's Help to Buy scheme: your questions answered.

Buying your first home is about more than just bricks and mortar. A lot more. It represents a lifestyle, a home, a place to put your stake in the ground, socialise, bring up a family and relax. So should you opt to buy with the government's new Help to Buy scheme or are you better of saving yourself the stress and strain of finding that monthly mortgage repayment every month and living a more relaxed lifestyle, renting a property and have the landlord take care of all the maintenance and repairs.

Still intent on buying but been rejected by the Help to Buy scheme?

There are other schemes if your Help to Buy appliation is rejected. NewBuy, enables those buying a new property to take out a mortgage with a 5 per cent deposit. This scheme is funded by the HomeBuilders Federation, the government and the Council of Mortgage Lenders. The criteria is that it is only available for specific houses worth up to £500,000. If you earn less than £60,000 a year and are in a Council property or a housing association property, you may be eligible for a shared-ownership scheme or, if you are over 55, you may be eligible for the Older Persons Shared Ownership schemes. NewBuy does not involve an shared equity.

Bigger deposit? Great! More choice!

Even if you are accepted, you will find a wider range of mortgages available if you are able to save a bigger deposit. Meeting loan repayments is a key part of the process and, as with any application, you will have to prove that you can make the payments when you apply for a Help to Buy loan. Some estate agents are predicting that as many as half the applicants could be turned down.

Rules and Guidelines

You cannot move on to another property and keep you Help to Buy property; you will have to pay that mortgage off first; so it's not possible to use the scheme to build a series of buy-to-let properties. 

If you want to buy a new house you cannot take out both schemes. The mortgage guarantee loan cannot be taken out on properties where there is an element of shared ownership or equity. It all depends on what you think of the housing market. If prices rise a lot then a shared equity loan scheme could prove very expensive, but if the market is flat or if values fall it will work out the cheaper option.

What will £600,000 get me?

This covers over 90 per cent of all homes for sale, but there are wide variations. On Teeside, it will buy you a detached house with 5 bedrooms while in London you might just get a 2 bed flat that qualifies. 

Figures show that 8 out of 10 applicants are from outside London; wherever you are choosing to buy, you still need to raise the 5 per cent deposit and have sufficient income to satisfy the lending criteria. Typically, lenders are looking at buyers only using 55 per cent of the income to cover payments each month; on this basis, buying a first-time property in London costing £256,000 would need a pre-tax salary of £54,000 to qualify. 

Lastly, think about your lifestyle as we said at the beginning. How do you want to live your life? 

If you rent you are more likely to pay around £1,200 to rent a two-bed flat in London as opposed to average loan repayments of £1,600 ie monthly repayments on a two-bed flat can be 30 per cent higher than renting the equivalent property, using the above figures as a basis for the calculation. That's quite a difference in your disposable income per month.

 

 

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